Here's how to budget for happiness

SPENDING SMART

June 17, 2007|By Gregory Karp Of The Morning Call

You should definitely spend money on a vacation this summer, unless you're financially strapped. Why? Because it's more likely to make you happy than any material purchase. You'll get better value for your money.

In short, you can, in fact, buy happiness -- if you know how. The answer lies in the simple slogan from The Center for a New American Dream, "More fun, less stuff."

A pile of academic research shows that positive life experiences contribute to happiness more than things do. So, in terms of spending your money smarter, your discretionary dollars will reap greater return on such purchases as vacations, attending live events and visiting friends than buying more stuff.

Though many Americans think bigger houses and faster cars will make them happier, it's probably not true. In fact, materialistic goals block the path to the "good life," research suggests.

"An orientation toward life experiences tends to make people happier than an orientation toward pursuing materialistic goods," said Leaf Van Boven, an assistant psychology professor at the University of Colorado at Boulder, who has studied the topic of happiness and well-being.

Here are reasons why you should spend money on experiences rather than stuff, followed by tips on how to spend smarter on experiences:

Mental editing. The scrapbook in our minds mostly remembers the good parts of experiences, such as vacations. It's not that you completely forget the annoyances; you just remember the joyful events with more force. Because of this memory editing, what academics call positive reinterpretation, the experience actually improves with time.

Think about your favorite memories. If you and your family reminisce about an amusement park outing, you would rarely talk about the long lines or overpriced food but about the fun you had. You barely remember the day it rained on your great beach vacation. Mediocre golfers disregard the many duffs and shanks during a round and instead recall fondly sinking a long putt or hitting a gloriously long drive. A positive memory obliterates in importance the bad ones and keeps them coming back for another round.

"Experiences, like a fine wine, get better with time," Van Boven said. By contrast, material purchases mostly lose value as they age, both in monetary worth and how much we appreciate them. You likely will never be more thrilled with a material purchase than during the first few days you own it. It's downhill from there.

"One of the reasons people like to buy material possessions is they have something to show for their money," Van Boven said. "What that fails to realize is that, psychologically, the memories really linger over time. Experiences are very durable."

People matter. An experience is usually a social event, while buying stuff is often a solitary one. "It's very clear that having a healthy social life is a key component of life satisfaction and well-being," Van Boven said.

You'll be more likable. "There is this negative stereotype of people who are materialistic," Van Boven said. "So one of the risks people face if they pursue materialistic status is that other people will see them as materialistic individuals."

And they'll like you less. "It can actually have a social cost," he said.

Research shows that materialistic people are less happy, less healthy and more at risk for psychological disorders, Van Boven said.

Here are tips to get the most out of your experience dollars:

Set goals. "I would encourage people to be more mindful and reflective about the way in which they allocate their money," Van Boven said. Imagine yourself at the end of your life and looking back. On your deathbed, would you regret not buying the latest iPod or spending more quality time with your children and friends? Or, to use a collective American experience, put yourself in the mind-set of the days following the Sept. 11, 2001, terrorist attacks. What seemed important then?

Most people would value experiences with other people more than the possessions, but it's easy to lose sight of that in daily living and spending. So write down your values and goals, and ways to achieve them. The list will not only give you a road map for spending your money, but also spending your time.

Customize high-order goals. When planning a vacation, for example, use the goals as a guide but choose specific experiences you enjoy. A trip to Europe to view famous building architecture is a fine vacation, but might be a mismatch for an avid hiker and nature lover.

And be sure to include people and many activities in the vacation, as they are fundamental components to a happy experience.

Don't overspend. On a happiness scale, you don't necessarily get what you pay for with experiences, such as vacations.

"It's really the time spent doing things, not the extravagancy of how you spend your time," Van Boven said. "Unlike material possessions, where you really expect to get a lot more for each additional dollar that you spend, when it comes to things like vacations, the value of the vacation is largely independent of the price of the vacation."

That also means it's not worth going into deep debt for a fancy vacation.

Of course, spending money on a vacation is just an example of experiential spending. Only you know which experiences float your happiness boat.

The Beatles sang, "Money can't buy me love." But maybe money can buy episodes of happiness -- if you spend it on doing, rather than owning.